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Informist, Wednesday, Mar. 26, 2025

By Srijita Bose

MUMBAI – Government bond prices surged as traders speculated that the Centre would release a light borrowing calendar for the first half of the financial year beginning April after market hours Wednesday, dealers said. Bets on a 25-basis-point rate cut along with a softer stance by the Reserve Bank of India's Monetary Policy Committee in April also aided prices, they said.

The 10-year 6.79%, 2034 bond ended at INR 101.31, or 6.60% yield, Wednesday, with the benchmark yield ending at its lowest since Jan. 14, 2022. The 2034 gilt had ended at INR 101.07, or 6.64% yield, on Tuesday.

Traders expect the government to raise 53-55% of its INR 14.82 trillion gross borrowing aim for FY26 in the first half, computing to around INR 8 trillion during the period. That would mean gilt issuance, in percentage terms, would be lower the 55-59% between FY22 and FY24. Traders were not perturbed that the number would be higher than the 53.1% announced in the current fiscal, where government spending in the first half took a hit due to the General Elections scheduled, dealers said.

"Today (Wednesday) there was a RBI meeting for the first half borrowing calendar and there was leak so people are taking a punt over it," a dealer at a primary dealership said. "We saw a 15-paisa rally on that news (in the 6.79%, 2034 bond). I expect around 55% and a less concentration in duration papers (maturing in 15-50 years)...MPC may cut rates and change stance also this time (in April) and before that the 10-year can fall near 6.55% levels." 

Traders speculated the borrowing calendar would reduce the share of borrowing in gilts maturing in 15 years, while raising the issuance of five year bonds, dealers said. Traders also expect the issuance of the 10-year to be the most, as is usual for the benchmark gilt. In Apr-Sept of 2024-25 (Apr-Mar), the government had planned 13.9% of its borrowing through 15-year bonds and only 9.6% in five-year gilts, while the concentration of 10-year bond was at 24%.

Market feedback to the RBI on the borrowing calendar had been that the share of long-term bonds be reduced, while increasing the supply of bonds maturing in up to seven years. Bonds maturing upto seven years underperformed on the secondary market due to expectation of increased supply despite expectations of a rate cut at the upcoming policy review, dealers said. Traders also await for liquidity conditions to ease further before pricing in further rate cuts on these bonds, they said.

The 15-year benchmark 6.92%, 2039 gilt surged the most among liquid bonds due to the speculation. Traders also prefer to pick up the bond ahead of the MPC's next rate cut to lock in better price appreciation per basis point move in yield, due to its longer tenure. Between the lower share of supply and positioning ahead of the expected rate cut in April, traders expect the 6.92%, 2039 bond's spread over the 6.79%, 2034 gilt to narrow by 3-4 basis points from the current 12 bps by the policy decision on Apr. 9, dealers said.

Traders are unanimously expecting the RBI's rate-setting panel to cut rates at its upcoming review with increasing expectations of stance change to 'accomodative' from 'neutral' to indicate a deeper rate-cutting cycle and easier liquidity conditions, dealers said. The yield on the 10-year benchmark gilt is expected to fall by another 4-5 bps before the panel meets from Apr. 7-9, with some traders expecting additional liquidity measures by the RBI in the coming week, they said.

"There are too many positives in the market right now, along with the borrowing calendar expectations, banks are also betting for rate cuts now after fulfilling their year-end targets and replacement demand from OMO sales are also coming in, especially from private banks," a dealer at a private bank said. "FPIs are also active and a good buying momentum is building."

Private and state-owned banks also picked up gilts maturing in these tenures to refill their held-to-maturity books after selling gilts worth INR 2.45 trillion through six OMO auctions since January, dealers said. The replacement demand was consistent since early in the day, which had led to gilt prices picking up and robust trade volumes, even before the speculation of the borrowing calendar was widely disseminated. Illiquid bonds maturing between 2031 and 2039 were the focus of asset-liability managers to lock in higher yields, dealers said.

Meanwhile, the rise in longer-tenure bonds maturing in 30-50 years was limited as traders had already positioned for a reduction in issuance in these bonds at the upcoming calendar. Long-term investors likely sold these bonds at a profit while foreign banks likely picked them up, dealers said. 

A fall in US yields overnight also aided bond prices early in the day, and the 10-year US yield was down to 4.34% at 1700 IST from 4.36% from Tuesday, hitting an overnight low of 4.30%, dealers said. Foreign portfolio investors were also likely picking up stock of the 7.18%, 2033 gilt as its INR 2-trillion outstanding is the most among index-eligible bonds. The weightage of India's fully accessible route gilts, which have no constraints on foreign investment, will rise to the maximum 10% on JP Morgan's Government Bond Index – Emerging Markets at the end of March. Bloomberg's Emerging Market Local Currency Government Index will also increase India bonds' weightage to 3% at month-end. Clearing Corp. of India data at 1912 IST showed FPIs sold INR 1.4 billion worth of fully accessible route gilts, though the quantum of the sales had reduced sharply from the day's high.

Meanwhile, at the last Treasury Bill auction of FY25, cut-off yields on the 91-day T-bill was set higher than the 182-day T-bill. While some traders were betting on a rate cut and easier liquidity in April, bidding aggressively, the lack of participation from mutual funds due to redemption pressure at the quarter-end and year-end led to higher cut-offs, dealers said. Mutual funds were also likely sellers of gilts on the secondary market for the second consecutive day, they said. 

The market-wide turnover for the day was INR 688.70 billion, compared to INR 520.90 billion Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were no trades using the wholesale digital rupee pilot for the 11th consecutive day.

OUTLOOK

Traders await the borrowing calendar for Apr-Sept for cues on gilt prices. Should the calendar come after market hours Thursday, gilt prices may take cues from that. Traders do not expect aggressive selling ahead of the calendar release, if it comes after market hours Thursday, due to expectations of a light first half supply. 

Some dealers are also looking forward to states' borrowing plan for Apr-Jun, also likely to be released this week. Traders will retain their bets on a repo rate cut and stance change by the RBI's Monetary Policy Committee in April due to a lack of significant interest rate cues until the next review on Apr. 7-9, dealers said.

Traders may also assess developments related to US tariff policy and the rupee's movement against the dollar, dealers said. US Treasury yields and crude oil prices could also be a trigger if they move significantly. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.55-6.65% during the day.

India Gilts: Remain sharply up as traders bet on light Apr-Sept borrow share

MUMBAI--1621 IST--Government bond prices remained sharply up as traders speculated that the Centre will release a light borrowing calendar for the first half of the financial year beginning April after market hours Wednesday, dealers said. Traders also bet on a 25-basis-point rate cut along with a softer stance by the Reserve Bank of India's Monetary Policy Committee in April, they said. The 10-year gilt yield fell below 6.60% for the first time since January 2022.

"There are rumors that the borrowing calendar is going to be released today. I am expecting either a similar borrowing (weight) with around 53-55% (in Apr-Sept)," a dealer at a private bank said. "Also, rate cut and stance change expectations and replacement demand are also leading to the rise in prices. We saw FPIs (foreign portfolio investors) also come in today (Wednesday)." Clearing Corp. of India data at 1602 IST shows FPIs sold INR 18.33 billion worth of fully accessible route gilts, though the quantum of the sales had reduced from the day's high.

Traders expect the government to raise 53-55% of its INR 14.82 trillion gross borrowing aim for FY26 in the first half, putting it at or around INR 8 trillion. This would be lower than the usual issuance of 55-58% between FY22 and FY24, dealers said, though it may inch up from the 53.1% planned in the current fiscal, where government spending in the first half took a hit due to the General Elections scheduled. 

The 15-year benchmark 6.92%, 2039 gilt surged the most among liquid bonds as traders speculated the borrowing calendar would reduce the share of borrowing in that tenure, while raising the issuance of five year bonds, which underperformed in the secondary market. In Apr-Sept FY25, the government had planned 13.9% of its borrowing through 15-year bonds, and only 9.6% in five-year gilts. Market feedback to the RBI on the borrowing calendar had been that the share of long-term bonds be reduced, while increasing the supply of bonds maturing in up to seven years.

The market-wide turnover was INR 688.70 billion, higher than INR 439.00 billion at 1630 IST on Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. During the day, the yield on the 6.79%, 2034 bond is seen at 6.58-6.63%.  (Srijita Bose)

India Gilts: Surge; 10-year gilt yld hits 38-mo low on FPI buys, bks' demand

MUMBAI--1345 IST--Prices of government bonds rose further Wednesday, with the 10-year benchmark gilt yield hitting its lowest level since Jan. 21, 2022. Dealers said the yield broke the psychologically crucial 6.62% level due to purchases from foreign portfolio investors as well as banks' demand, replacing gilts sold to the Reserve Bank of India at the open market operation auctions earlier in the March quarter. Some traders were also optimistic the government would keep its borrowing in Apr-Sept light, in a repeat of 2024-25 (Apr-Mar).

"People are the expecting the borrowing calendar (for Apr-Sept) to be released today (Wednesday) and the supply in the first half might be lower than market's expectations," a dealer at a state-owned bank said.

Media reports have said the government and the RBI are meeting Wednesday to discuss the borrowing calendar for Apr-Sept, and traders are betting on the government to restrict its issuance to only around INR 8 trillion in the first half of the fiscal year. This would put the Apr-Sept borrowing at 54.0% of the government's INR 14.82 trillion gross borrowing target, against 53.1% a year ago and the routine 55-58% in the years prior.

Purchases from private and state-owned banks to refill their held-to-maturity books, along with traders' bets on falling yields if the RBI's Monetary Policy Committee cuts the repo rate by 25 basis points in April and softens its stance to 'accommodative', also drove up gilt prices, dealers said.

The RBI has bought gilts worth INR 2.45 trillion through six OMO auctions since January, with banks seeking to replace those securities by the end of the financial year Monday. Banks also picked up stock for their trading books, on views that yields would fall further after an expected rate cut in April, and easing liquidity conditions, dealers said. Traders and investors both preferred to purchase the 7.10%, 2034 and 7.18%, 2033 gilts compared to other tenures, which offered higher yields than the 10-year benchmark 6.79%, 2034 gilt.

"There's replacement demand and some value-buying from PSUs and private banks because these yields are lucrative before a rate cut," a trader at a primary dealership said. "The 7.18%, 2033 gilt is also seeing some passive flows." 

FPIs were likely picking up stock of the 7.18%, 2033 gilt as its INR 2-trillion outstanding is the most among index-eligible bonds. The weightage of India's fully accessible route gilts, which have no constraints on foreign investment, will rise to the maximum 10% on JP Morgan's Government Bond Index – Emerging Markets at the end of March. Bloomberg's Emerging Market Local Currency Government Index will also increase India bonds' weightage to 3% at month-end.

The market-wide turnover was INR 401.05 billion, higher than INR 142.75 billion at 1330 IST on Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. During the day, the yield on the 6.79%, 2034 bond is seen at 6.58-6.63%.  (Cassandra Carvalho)

India Gilts: Up on replacement demand after RBI's OMO buys, fall in US ylds

MUMBAI--0935 IST--Prices of government bonds were up as traders purchased gilts to refill their books after tendering gilts to the Reserve Bank of India at open market operation auctions, especially at Tuesday's auction. The buying momentum was furthered by a slight overnight fall in US Treasury yields, dealers said. Traders awaited the central government borrowing calendar, along with states' borrowing plan, expected at the end of this week, for further cues.

"Market is steady but US yields came down slightly, so that's slight positivity...market is waiting for the borrowing calendar and then MPC (meeting)," a dealer at a private bank said. 

Traders preferred to pick up illiquid bonds maturing between 2031 and 2034 to best match their liabilities, including some banks preferring floating rate bonds, which offer yields around 70 basis points higher than gilts of comparable maturities. Off-the-run gilts offer higher yields due to their illiquidity. After the RBI bought INR 2.45 trillion worth of largely illiquid gilts at OMO auctions in Jan-Mar, banks have begun refilling their held-to-maturity portfolios, first with higher-yielding state bonds and then illiquid gilts, dealers said.

The yield on the benchmark 10-year US Treasury note fell to 4.34% at 0900 IST, hitting a low of 4.30% overnight, against 4.36% at 1700 IST on Tuesday. US yields fell after rising for two days, with investors trying to gauge the intensity and impact of US President Donald Trump's reciprocal tariff measures scheduled to come into effect on Apr. 2.

Traders now await the central government's borrowing calendar for Apr-Sept and states' borrowing plan for Apr-Jun. Both announcements are expected this week. Traders continued to bet on a 25-basis-point rate cut and change of stance to 'accommodative' from 'neutral' by the RBI's Monetary Policy Committee next month. 

The market-wide turnover was INR 27.35 billion, higher than INR 16.90 billion at 0930 IST on Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. During the day, the yield on the 6.79%, 2034 bond is seen at 6.60-6.66%. (Cassandra Carvalho)

India Gilts: Seen tad up on rate cut view, US yld fall; fresh cues awaited

MUMBAI – Government bond prices may open slightly higher on persistent domestic rate cut bets and an overnight fall in US Treasury yields. Gains are likely to be modest as traders await fresh domestic cues on bond supply this week, dealers said.

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.60-6.66%, compared with 6.64% on Tuesday. Gilt prices will likely remain in a narrow range as most dealers await the government's borrowing calendar for Apr-Sept and states' borrowing plans for Apr-Jun, both expected to be released this week, dealers said.  

Traders may find current levels lucrative to buy gilts, betting on a rise in prices after the Reserve Bank of India's Monetary Policy Committee cuts the repo rate to 6.00% in April, as is widely expected. Improvement in systemic liquidity on Monday was also seen as a positive as a rate cut requires the system to have adequate liquidity for transmission into the broader financial system. As bets on a rate cut and a policy stance change to 'accommodative' from 'neutral' have gained momentum, the yield on the 10-year benchmark gilt has fallen by nearly 10 basis point since February-end. Traders will likely continue buying gilts on the view yields may fall sharply in the first week of April.

Banks will also likely pick up gilts maturing in 7–15 years, which the RBI has bought the most through its open market operation auctions. So far, the RBI has bought gilts amounting to INR 2.45 trillion through six OMO auctions since January. Traders have replenished some of their holdings with higher-yielding state bonds, but dealers said they will also pick up gilts so as not to skew their portfolios too much. 

On the global front, the yield on the US 10-year benchmark note eased to 4.33% at 0800 IST from 4.36% at the Indian market close Tuesday. Any further intraday ease in US yields can likely spur inflows from overseas investors, dealers said. On Tuesday, as US yields rose for the second straight day, foreign portfolio investors sold gilts amounting to INR 4.82 billion through fully accessible route, Clearing Corp. of India data showed. US yields have been rising this week ahead of the implementation of reciprocal tariffs by US President Donald Trump, which is set to take effect on Apr. 2. (Vidhushi RajPurohit)

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Deepshikha Bhardwaj

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